Monday, June 3, 2013

With the upcoming June 30th deadline to file 2013 FBAR forms for US
Taxpayers with foreign accounts over $10,000 and so much News regarding FBAR's, we
thought it would be a good time to review the FBAR requirement as well as the
News relating to the IRS' Enforcement Efforts regarding FBAR's and Offshore
Voluntary Disclosures, including:

If you have a financial interest in or signature
authority over a foreign financial account, including a bank account, brokerage
account, mutual fund, trust, or other type of foreign financial account, the
Bank Secrecy Act may require you to report the account yearly to the Internal
Revenue Service by filing Form TD F 90-22.1, Report of Foreign Bank and
Financial Accounts (FBAR).

Who Must File an FBAR

United States persons are required to file an
FBAR if:

1.The United States person had a financial
interest in or signature authority over at least one financial account located
outside of the United States; and

2.The aggregate value of all foreign financial
accounts exceeded $10,000 at any time during the calendar year to be reported.

United States person means United States
citizens; United States residents; entities, including but not limited to,
corporations, partnerships, or limited liability companies created or organized
in the United States or under the laws of the United States; and trusts or
estates formed under the laws of the United States.

Look to the form’s instructions to determine
eligibility for an exception and to review exception requirements.

Reporting and Filing
Information

A person who holds a foreign financial account
may have a reporting obligation even though the account produces no taxable
income. Checking the appropriate block on FBAR-related federal tax return or
information return questions (for example, on Schedule B of Form 1040, the
"Other Information" section of Form 1041, Schedule B of Form 1065,
and Schedule N of Form 1120) and filing the FBAR, satisfies the account
holder's reporting obligation.

The FBAR is not filed with the filer's federal
income tax return. The granting, by the IRS, of an extension to file federal
income tax returns does not extend the due date for filing an FBAR. You may not
request an extension for filing the FBAR. The FBAR is an annual report and must
be received by the Department of the Treasury in Detroit, MI, on or
before June 30th of the year following the calendar year being reported.
While FinCEN strongly encourages individuals to electronically file FBARs, the
form can be mailed to one of the two addresses below, provided that the mailing
is received by June 30, 2013:

File by mailing the FBAR to:

United States Department
of the Treasury

P.O. Box 32621

Detroit, MI 48232-0621

If an express delivery service is required for a
timely filed FBAR, address the parcel to:

IRS Enterprise Computing
Center

ATTN: CTR Operations Mailroom, 4th Floor

985 Michigan Avenue

Detroit, MI 48226

Delivery messenger service contact telephone
number: (313) 234-1062.

Account holders who do not comply with the FBAR
reporting requirements may be subject to civil penalties, criminal penalties,
or both.

Electronic Filing for
FBAR Forms – MANDATORY Beginning July 1, 2013

On June 29, 2011, FinCEN announced that all
FinCEN forms must be filed electronically with certain exceptions. The FBAR was
granted a general exemption from mandatory electronic filing through June 30,
2013. E-filing is a quick and secure way for individuals to file FBARs. Filers
will receive an acknowledgement of each submission. For more information about
FBAR e-filing, read the FinCEN news release.

Taxpayers with specified foreign financial
assets that exceed certain thresholds must report those assets to the IRS on
Form 8938, Statement of Specified Foreign Financial Assets. The new Form 8938
filing requirement does not replace or otherwise affect a taxpayers requirement
to file FBAR. A chart providing a comparison of Form 8938 and FBAR requirements,
and other information to help taxpayers determine if they are required to file
Form 8938, may be accessed from the IRS Foreign Account Tax Compliance Act Web page.

3. Offshore Voluntary Disclosure Program

On Jan 9, 2012, the IRS reopened the Offshore Voluntary Disclosure Program
following continued interest from taxpayers and tax practitioners after the
closure of the 2011 and 2009 programs. This program will be open for an
indefinite period until otherwise announced.

4. IRS Cracks Down on "Quiet
Disclosures."

The IRS is cracking down on so-called soft or "Quiet
Disclosures." According to a recent the U.S. Government Accountability Office (GAO) report, more than 10,000 taxpayers showed signs of having avoided offshore penalties
by making “Quiet Disclosures” of foreign bank accounts for tax years 2003
through 2008,, a
period for which the IRS has detected several hundred quiet disclosures.

Filing
data also suggest many more taxpayers may have begun reporting previously
reportable foreign accounts on a recent current-year return without entering
the government’s offshore voluntary disclosure program (OVDP) or making a quiet
disclosure for prior open years, the GAO said. While these taxpayers may have
come into voluntary compliance going forward, they also thereby may have
avoided all penalties and past due taxes and interest on the accounts and
income generated by them.

In the report, Offshore Tax Evasion: IRS Has Collected Billions of Dollars,
but May Be Missing Continued Evasion (GAO-13-318), released April 26,
the GAO gave results of its study of the effectiveness of the IRS’s 2009 OVDP,
which was the IRS’s second OVDP and the most recent one with enough closed
cases for analysis. The IRS also conducted OVDPs in 2003 and 2011 and has had
one currently ongoing since 2012. In each, taxpayers have been allowed to apply
to the IRS and, if they qualify, disclose their foreign accounts and pay taxes,
interest, and tax-related penalties due for open years. In exchange, the IRS
waives any criminal prosecution and limits the penalty for failing to disclose
the accounts (“offshore penalty”) to, in the 2009 OVDP, 20% of the highest
aggregate value of the unreported accounts between 2003 and 2008 (the years
covered by the 2009 OVDP).

The GAO identified 19,337 participants in the 2009 OVDP in 10,439 closed
cases. The average offshore penalty assessed was about $376,000. Almost half
the participants had accounts in Switzerland (a “John Doe” summons in 2008 for
the names of U.S. account holders in Swiss bank UBS was a major factor driving
participation in the 2009 OVDP). About half of the $4.1 billion in total
revenues collected (as of the end of 2012) was from 378 cases. All the OVDP
programs together have resulted in more than 39,000 disclosures and more than
$5.5 billion in revenues as of December 2012.

Quiet disclosures

To detect potential quiet disclosures for years covered by the 2009 OVDP,
the GAO identified filed amended or late returns and Forms
TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), for
one or more of those years and then excluded OVDP participants from this group.
Under these criteria, it determined that there were 10,595 taxpayers who made
quiet disclosures. Of those, 3,386 taxpayers made late or amended filings for
multiple tax years—94 of them for all six years.

taxpayers that had

The IRS had arrived at its “several hundred” estimate (the report did not
give a more specific number) of quiet disclosures, by similarly looking at
amended returns for the period and screening out those with adjustments
unrelated to offshore accounts. It also looked at amended returns with
increased tax assessments over a certain threshold. The IRS also looked at
FBARs filed or amended with amended returns, but only for those processed in
2009 and for the limited purpose of detecting movement of taxpayer assets from
“non-secrecy” jurisdictions to those with financial secrecy laws.

New disclosures

To estimate potential numbers of taxpayers newly reporting existing foreign
financial accounts without making any disclosure concerning or amending prior
returns, the GAO also looked at the overall increase between tax years 2003 and
2011 in FBAR filings and from fiscal 2003 to 2010 in returns that reported
“yes” to the question on Schedule B, Interest and Ordinary Dividends,
about whether the taxpayer owned or controlled a foreign financial account. The
latter more than doubled in that period to 515,635. As a percentage of all
taxpayers filing Schedule B, they rose from approximately 1% in 2003 through
2007 to more than 2.5% in 2010.

Similarly, the number of FBARs filed more than tripled to 618,134 from
fiscal 2003 to 2011, and more doubled between 2009 and 2010. Legitimate reasons
for the increase could include taxpayers who had complied with income reporting
requirements previously and who without previously realizing the need to also
answer the question on Schedule B affirmatively and file an FBAR, began doing
so.

“However,” the GAO added, “such a sharp increase … amidst the global
economic recession and the publicity surrounding IRS’s offshore programs raises
the question whether some of these taxpayers may have attempted to circumvent
some of the taxes, interest, and penalties that would otherwise be owed.”

The IRS agreed with the GAO’s recommendations that it use similar methods to
more effectively detect and pursue quiet disclosures and previously unreported
foreign financial accounts and to use offshore data to educate taxpayers about
compliance.